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RIMM to Segregate Mobile Phone Unit

by Zacks Equity Research

June 25, 2012 | Comments : 0 Recommended this article: (0)

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It is being rumored that BlackBerry maker Research In Motion Ltd. ( ) is looking to split its messaging business unit from its BlackBerry mobile developing unit.

Research In Motion has already selected JP Morgan ( JPM - Analyst Report ) and RBC Capital to identify business strategies that could help the BlackBerry handset business. The company is also considering other options, including its disposition, spin-off or even merger with a company that could provide technological support.

Continuous loss of market share and increasing competition from Apple Inc.’s ( AAPL - Analyst Report ) iPhones and Google Inc.’s ( GOOG - Analyst Report ) Android-based smartphones, coupled with poor handset sales primarily due to a backdated operating system have dampened investor’s confidence.

So in order to minimize its losses as well as to retain goodwill, Research In Motion is planning to separate its loss-making wireless device manufacturing unit from its popular BlackBerry messaging unit.

Our Take

We believe that Research In Motion started pondering the idea last year when it launched the first QNX-based PlayBook tablet without their popular BlackBerry messenger (BBM) and email service. The move was highly criticized by the loyal BlackBerry customers and consequently, RIMM launched an upgraded version of the PlayBook tablet, fixing the email issue without the BBM application.

We also believe that the BBM application is not perfectly compatible with the new QNX software and may have forced the company to plan a separate entity or start from scratch, which would require huge investments.

Despite receiving several takeover bids from major firms, the company remains confident about improving its current business scenario. The company has already launched an improved version of the PlayBook tablet and plans to launch their popular BlackBerry 10-based smartphones, which is believed to be based on QNX-based open platform. The company is also promoting software development around its tablets and smartphones in order to compete with Android phones and iPhones.

Currently, Research In Motion has a Zacks #3 Rank, implying a short-term Hold rating on the stock.

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